India: All In Or Fold – The Legal Conundrum Of Real Money Online Poker

Indian mythology suggests that playing and losing at a game of
dice led to the Pandava brothers, their wife and mother being sent
to exile. Regardless of this cautionary tale, the online gaming
market in India has taken off in India with revenues reaching Rs.
43.8 billion in FY 18 and expected to grow to Rs. 118.8 billion by
2023.1

The question of whether the state should permit businesses
relating to betting and gambling was hotly debated in the
Constituent Assembly Debates, with several members opposing
constitutional sanction to betting and gambling activities. Members
drew support for their argument from sources as varied as the
apocryphal sufferings of the Pandavas to the ideals of Mahatma
Gandhi.

Notwithstanding their opposition, List II of the Seventh
Schedule to the Indian Constitution places matters relating to
betting and gambling within the legislative purview of state
governments. This compromise allowed state governments to choose to
either prohibit or regulate (and tax) activities relating to
betting and gambling.

States in India enthusiastically exercised their legislative
rights to regulate gaming/ gambling activities within their
territory, passing a variety of betting and gambling laws
(State Gambling Legislations). Approaches vary,
with some states prohibiting betting and gambling altogether,
others permitting a narrow range of betting and gambling
activities, and yet another contingent of states adopting the easy
way out and modelling their enactments on the antediluvian central
legislation on the subject, The Public Gambling Act, 1867 (together
with the State Gambling Legislations, the Gambling
Legislations).

Gaming Houses

Most Gambling Legislations predate the internet and envisage
gambling activities taking place in premises termed as "common
gaming houses". With the exceptions of Nagaland, Sikkim and
Telangana, Gambling Legislations do not directly address gaming or
gambling conducted on a virtual platform. The term "common
gaming house" is typically defined broadly in Gambling
Legislations, and it is safe to assume that web-servers which house
online gaming websites are likely to fall within their ambit.
Persons who own, occupy or manage common gaming houses are liable
for violations under most Gambling Legislations, with penalties
being either a fine, imprisonment or a combination of both.

Game of Skill v. Game of Chance

Gambling Legislations typically distinguish games of chance from
games of skill – while the former is equated to gambling and
prohibited, the latter is typically distinguished from gambling and
is not prohibited. Some exceptions to this general rule can be seen
in the Gambling Legislations of Assam, Odisha and Telangana, which
do not carve out games of skill from restrictions on gambling.

While most poker players would argue vociferously that poker is
a game of skill2, courts have typically had a harder
time coming to this conclusion. Some states, without going into the
question of whether poker is a game of chance or skill, have
permitted and regulated poker under local Gambling Legislations.
Examples of this approach can be seen in West Bengal and Sikkim.
Sikkim and Nagaland allow certain games (including poker) to be
operated and played online under a licence obtained from the State
Government. Interestingly, with the exception of Nagaland, the term
game of skill has not been statutorily defined in the Gambling
Legislations3.

Given the absence of a statutory definition, courts have stepped
in and sought to draw a line separating games of skill from games
of chance. The Supreme Court's decisions in Dr.
K.R. Lakshmanan v. State of Tamil Nadu4, State
of Bombay v. RMD Chamarbaugwala5and State of
Andhra Pradesh v. K. Satyanarayana and ors.6 have
prescribed the following general rules:

The determination of whether a game constitutes a 'game of
skill' depends on the extent of skill involved in the relevant
activity.

If a game involves substantial skill but has an element of
chance, it would be considered as a game of skill irrespective of
the element of chance.

While there is an element of chance in the distribution of
cards in games such as rummy, rummy is predominantly a game of
skill, on the basis that the fall of cards in a game of rummy is
required to be memorised and the game itself involves considerable
skill in holding and discarding cards. Similar arguments could
apply to other card games.

Poker as a Game of Skill

Indian states/ courts have taken
inconsistent views on whether poker is a game of skill or chance.
The High Court of Gujarat in Dominance Games Pvt. Ltd. v. State
of Gujarat7 distinguished between rummy and Texas
hold'em poker and held that while rummy was a game of skill,
poker is a game of gambling and involves betting as an inseparable
part of the game play. Courts in Karnataka and West Bengal have
been less equivocal and have issued favourable rulings in the
context of petitions filed to restrain police interference in clubs
and associations where poker is played by members. However, these
decisions do not analyse whether poker is a game of skill or
chance.

There is no conclusive judicial order on whether poker is a game
of skill or chance. That said, in instances where courts have
scrutinised this question, they have typically concluded that
online poker is a game of chance. The Supreme Court, in M. J.
Sivani v. State of Karnataka8 stated that the
elements of gaming are the presence of prizes or consideration, and
gaming involved playing of any game, whether of skill or chance,
for money or money's worth. In the context of games like poker
double up, blackjack and pacman, the court noted that there was no
scope for using one's skill to arrive at a desired result, as
the electronic machines on which these games were played could be
tampered with resulting in the chances of winning becoming
completely unrelated to the skill of the player. Accordingly, games
played electronically were placed under the scope of 'games of
chance'. While the decision in M.J. Sivani was issued
in the context of games played on a machine/video games, rather
than internet poker, similar considerations could apply to real
money online poker.

The Additional District Judge, New Delhi in M/s Gaussian
Networks Pvt. Ltd. v. Monica Lakhanpal and State of NCT [9]
drew a difference between games played in a physical space and
those played virtually, and stated in this regard that playing
'games of skill' for money is legal only to the extent of
the games being played in physical form. The court observed that
while playing games on an online forum, various factors increase
the degree of chance and the predominance of skill over chance
becomes questionable, as factors like randomness, cheating and
collusion become prevalent. The original petition was subsequently
withdrawn and hence the aforesaid decision was set aside.

Real Money Online Poker

The legality of poker played for real money is not consistent
across the various states of India. The Supreme Court in M. J.
Sivani, has taken a clear stand that any game, whether of
skill or chance, when played for "money or money's
worth" will fall within the ambit of gaming or gambling.
Except for the limited states that have adopted laws to regulate
online gaming/ gambling, in the absence of a Supreme Court decision
on this issue, it is difficult to ascertain the parameters that can
determine the legality of real money online poker in other
states.

Accordingly, while the legal position on whether the business of
real money online poker is compliant with Indian laws is uncertain,
courts have typically held that poker is a game of chance,
particularly when played online or through video games. While
arguments can be framed to support the contention that poker is
predominantly a game of skill, irrespective of the element of
chance– these are judicially untested.

* The authors were assisted by Anuj Dattathreya, Associate and
Sonakshi Verma, Associate

Footnotes

1 "The evolving landscape of sports gaming in
India" by KPMG and IFSG, March 2019

2 "Towards the Legalization of Poker: The Skill
v. Chance Debate" by Robert C. Hannum and Anthony N. Cabot,
the UNLV Gaming Research and Review Journal, Volume 13 Issue 1 (A)
Hope, Mizelle, & McCulloch (2009) examined 103 million hands of
Texas Hold'Em played at an online poker site and estimate that
76 percent of the hands in Texas Hold'Em do not go to showdown.
Of the remaining 24 percent, only about half, or 12 percent of all
hands, are won by the player at the table who would have had the
best hand. This is because the player with the luckiest cards that
would otherwise have been the best 5-card hand folded prior to
showdown. Thus, only about 12 percent of the time does the player
with the best or luckiest cards show his hand and win. (B) When a
skilled player employing a raise-when-possible strategy is up
against a player making haphazard (random) decisions in a limit
Texas Hold'Em game, the skilled player wins full pots 96.8
percent of the time and split pots 0.21 percent of the time, with a
win rate average of 1.6 big blinds per hand (for comparison, three
big blinds per hour, or 0.10 big blinds per hand assuming 30 hands
per hour, is considered reasonably good among top poker players).
That a player can implement a strategy to defeat another player
such a high percentage of the hands, with such a large win rate is
strong evidence that skill predominates over chance in determining
the outcome in poker.

3 Section 2(3) of the Nagaland Prohibition of
Gambling and Promotion and Regulation of Online Games of Skill Act,
2015 "where there is preponderance of skill over chance,
including where the skill relates to strategising the manner of
placing wagers or placing bets or where the skill lies in team
selection or selection of virtual stocks based on analysis or where
the skill relates to the manner in which the moves are made,
whether through deployment of physical or mental skill and
acumen"

4 (1996) 2 SCC 226

5 AIR 1957 SC 699

6 AIR 1968 SC 825

7 (2018) 1 GLR 801

8 (1995) 6 SCC 289

9 Suit No. 32/2012

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